8.8.8 Lender’s Review and Recommendation

A. The Lender’s Underwriter’s recommendation, after review of all processing materials and third-party reports, is made in a separately bound report addressed to HUD included in the Underwriter’s narrative.

1. The report must detail the project’s financial requirements and the credit capacity of the Sponsors, Borrower entity, its principals, and the General Contractor. The Lender’s Underwriter’s narrative must detail the project’s financial feasibility with an analysis of the primary risks, any mitigating factors, and the rationale for any waivers requested. The mortgage credit analysis must contain evidence of the financial feasibility and acceptability of the single asset entity, of each principal with decision making control and of investors providing funds for initial closing. Include at a minimum, the:

Name of the Borrower entity.

• Composition of the Borrower entity include the tiers showing principals with control and providing the financing.

• Name of the General Contractor, disclosing any relationship(s) with the Borrower entity.

• Mortgage amount and controlling criterion.

Financial requirements for closing.

• Sources of funds to meet cash requirements, including all sources and disclosing how the money will be used.

Ratio of loan proceeds to actual cost for the purpose of cost certification.

The experience level of the development team relative to the proposed project.

• A credit and financial review of Sponsor(s)/Borrower and principals and General Contractor. This review must provide an overview of their financial strength, liquidity, experience, and creditworthiness and address positive and negative findings known by the Lender.

• Completion Assurance requirements. (See Chapter 3, Section 3.2.7)

• Recommendation to accept or reject the proposed project.

  • If accepted, any conditions to be included in the commitment. (See Chapter 11)

2. Complete form HUD-92264-A and exhibits for the type of mortgage proposed.

3. The Lender must transmit to HUD all Borrower submissions and related documents. The Lender will analyze the stability of the principal’s portfolio ownership and management structure, portfolio characteristics and market conditions and recommend prior approval of creditworthiness. The analysis shall include:

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Review of the stability of ownership and management.

• Evaluation of any problems and challenges confronting the principal and the principal’s plans for action in response to such challenges including:

  • 1. Underperforming properties, (e.g., properties at less than 90% occupancy; properties at less than 1.1 to 1 debt service coverage; properties with significant physical or management problems).
  • 2. A review of REAC scores for existing HUD properties. Explanation and corrective action for properties having a score of less than 65.
  • 3. Existing defaults and/or pending capital transactions, (e.g., anticipated refinancing or refunding, pending balloon payments, interest rate resets).
  • 4. Property or Asset Management deficiencies, (e.g., underfunded reserves, deferred management fees).
  • 5. Suits, judgments, liens, or related adverse actions.
  • 6. Weak or unstable markets affecting geographically concentrated properties or other actual or prospective adverse conditions affecting a unique combination of assets and the impact of such conditions on the portfolio.
  • 7. A determination whether the principal’s reputation, past performance and capacity support a conclusion that insured assets will be maintained in good physical condition, with timely capital replacements and prompt, effective action to remedy problems.